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Module 2 course 1 pgdmm mysore university

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  • 1. Business marketsMarketing in businesses is different to marketing to consumers, although many of the techniques, such as branding,can be transferred successfully.In particular, business-to-business markets (B2B) are more focused oncustomer relationships than is normally true forconsumer markets. Business vs consumer markets To help explain the differences between business and consumer markets, It is worth drawing some comparisons between the two. Consumer Business Every customer has equal value and represents a There are a small number of big customers that small % of revenue account for a large % of revenue Sales are made remotely, the manufacturer doesnt Sales are made personally, the manufacturer gets to meet the customer know the customer Products are the same for all customers. The service Products are customised for different customers. element is low Service is highly valued Purchases are made for personal use - image is Purchases are made for others to use - image is important for its own sake important where it adds value to customers The purchaser is normally the user The purchaser is normally an integrator, someone down the supply chain is the user. Costs are restricted to purchase costs Purchase costs may be a small part of the total costs of use The purchase event is not subject to tender and The purchase event is conducted professionally and negotiation includes tender and negotiation. The exchange is one off transaction. There is no The exchange is often one of strategic intent. There long-time view (financial services differ) is the potential for long term value For both consumer and B2B markets, the foundation of marketing is based on knowing your customers. However, in consumer markets, the customer is remote, at arms length from you, and consequently you use mass communication and distribution tools. In B2B the customer is much closer. You have far more knowledge of the customer through personal contacts, although this knowledge is typically ad hoc in nature and may be partial.For a consumer market, the product and its packaging are of greatest importance to the customer in the marketing mix.
  • 2. For B2B markets, although product quality is important, this has to be matched by quality of supply - delivering theproduct when it is needed, account service and support, and strategic flexibility within the relationship context.These supply chain elements may have more say in winning order than having a perfect product. This is notsurprising as any supply chain problems create costs for the customer (eg stock, machine downtime, lost orders)Because supply chain is often seen as logistical function in B2B markets, the role of marketing is limited to a role ofcreating promotional materials, attending exhibitions and running seminars. In these circumstances marketing mayhave no strategic role in the business and be operating purely as a printing and publishing outfit.Ideally marketing needs to be heavily involved with the customer and in fact marketing in a B2B context is oftenreferred to as delivering not just for your customer, but for your customers customer. By taking a whole chainview, it can be possible to identify downstream opportunities for additional revenue and opportunities touse branding to stake out your position in the value chain.Consumer behaviourConsumer behaviour is the study of when, why, how, and where people do or do not buy a product. Itblends elements from psychology,sociology, social anthropology and economics. It attempts tounderstand the buyer decision making process, both individually and in groups. It studies characteristicsof individual consumers such as demographics and behavioural variables in an attempt to understandpeoples wants. It also tries to assess influences on the consumer from groups such as family, friends,reference groups, and society in general.Black box model ENVIRONMENTAL FACTORS BUYERS BLACK BOX BUYERS RESPONSE Marketing Environmental Buyer Decision Process Stimuli Stimuli Characteristics Problem recognition Economic Attitudes Information search Product choiceProduct Technological Motivation Alternative Brand choicePrice Political Perceptions evaluation Dealer choicePlace Cultural Personality Purchase decision Purchase timingPromotion Demographic Lifestyle Post-purchase Purchase amount Natural Knowledge behaviourThe black box model shows the interaction of stimuli, consumer characteristics, decision process and [1]consumer responses. It can be distinguished between interpersonal stimuli(between people) or [2]intrapersonal stimuli (within people). The black box model is related to the black boxtheory of behaviourism, where the focus is not set on the processes inside a consumer, but
  • 3. the relation between the stimuli and the response of the consumer. The marketing stimuli are plannedand processed by the companies, whereas the environmental stimulus are given by social factors, basedon the economical, political and cultural circumstances of a society. The buyers black box contains thebuyer characteristics and the decision process, which determines the buyers response.The black box model considers the buyers response as a result of a conscious, rational decision process,in which it is assumed that the buyer has recognized the problem. However, in reality many decisions arenot made in awareness of a determined problem by the consumer.Information searchOnce the consumer has recognised a problem, they search for information on products and services thatcan solve that problem. Belch and Belch (2007) explain that consumers undertake both an internal(memory) and an external search.Sources of information include: Personal sources Commercial sources Public sources Personal experienceThe relevant internal psychological process that is associated with information search is perception.Perception is defined as "the process by which an individual receives, selects, organises, and interpretsinformation to create a meaningful picture of the world".The selective perception processStage Description Selective exposure consumers select which promotional messages they will expose themselves to. Selective attention consumers select which promotional messages they will pay attention to. Selective comprehension consumer interpret messages in line with their beliefs, attitudes, motives and experiences. Selective retention consumers remember messages that are more meaningful or important to them.The implications of this process help develop an effective promotional strategy, and select which sourcesof information are more effective for the brand.Information evaluationAt this time the consumer compares the brands and products that are in their evoked set. How can themarketing organization increase the likelihood that their brand is part of the consumers evoked(consideration) set? Consumers evaluate alternatives in terms of the functional and psychologicalbenefits that they offer. The marketing organization needs to understand what benefits consumers areseeking and therefore which attributes are most important in terms of making a decision. It also needs tocheck other brands of the customer’s consideration set to prepare the right plan for its own brand.Purchase decision
  • 4. Once the alternatives have been evaluated, the consumer is ready to make a purchase decision.Sometimes purchase intention does not result in an actual purchase. The marketing organization mustfacilitate the consumer to act on their purchase intention. The organization can use a variety oftechniques to achieve this. The provision of credit or payment terms may encourage purchase, or a salespromotion such as the opportunity to receive a premium or enter a competition may provide an incentiveto buy now. The relevant internal psychological process that is associated with purchase decision isintegration. Once the integration is achieved, the organization can influence the purchase decisions muchmore easily.Postpurchase evaluationThe EKB model was further developed by Rice (1993) which suggested there should be a feedback loop,Foxall (2005) further suggests the importance of the post purchase evaluation and that the post purchaseevaluation is key due to its influences on future purchase patterns.Internal influencesConsumer behaviour is influenced by: demographics, psychographics (lifestyle), personality, motivation,knowledge, attitudes, beliefs, and feelings.External influencesConsumer behaviour is influenced by: culture, sub-culture, locality, royalty, ethnicity, family, social class,past experience reference groups, lifestyle, market mix factorsDefining Consumer BehaviorWhat is Consumer Behavior?How many times throughout the day do people make product decisions? If you stop to think about it, manyproduct decisions are made every day, some without much thought. What should I wear? What should I eat? Whatam I going to do today? Many product decisions are answered routinely every day and they help move theeconomy of cities, countries and ultimately the world.Product decisions also shape life for the consumer. How can simple decisions be so important? Why do marketersspend millions of dollars to uncover the reasons behind these decisions?To define consumer behavior: it is the study of consumers and the processes they use to choose, use (consume),and dispose of products and services. A more in depth definition will also include how that process impacts theworld. Consumer behavior incorporates ideas from several sciences including psychology, biology, chemistry andeconomics."All marketing decisions are based on assumptions and knowledge of consumer behavior," (Hawkins andMothersbaugh, 2007). Researching consumer behavior is a complex process, but understanding consumerbehavior is critical to marketers-they can use it to:Provide value and customer satisfaction.Effectively target customers.Enhance the value of the company.
  • 5. Improve products and services.Create a competitive advantageUnderstand how customers view their products versus their competitors products.Expand the knowledge base in the field of marketing,Apply marketing strategies toward a positive affect on society (encourage people to support charities, promotehealthy habits, reduce drug use etc.)Consumers As Problem SolversTraditionally, consumer researchers have approached decision making process from a rationalperspective. This dominant school of thought views consumers as being cognitive (i.e., problem-solving) and, to some but a lesser degree, emotional.i Such a view is reflected in the stage modelof a typical buying process (often called the consumer information processing model) depicted inFigure 1. Problem Recognition Information Search Evaluation and Selection of Alternatives Decision Implementation Post-purchase EvaluationFigure 1 The Consumer Information Processing Model Source: Adopted from Kotler (1997), Schiffman and Kanuk (1997), and Solomon (1996)In this model, the consumer passes through five stages: problem recognition, information search,evaluation and selection of alternatives, decision implementation, and post-purchase evaluation.Problem RecognitionIn this information processing model, the consumer buying process begins when the buyerrecognizes a problem or need. For example, Doug may realize that his best suit doesn’t lookcontemporary any more. Or, Kathleen may recognize that her personal computer is notperforming as well as she thought it should. These are the kinds of problem that we asconsumers encounter all the time. When we found out a difference between the actual state and
  • 6. a desired state, a problem is recognized. When we find a problem, we usually try to solve theproblem. We, in other words, recognize the need to solve the problem. But how?Information SearchWhen a consumer discovers a problem, he/she is likely to search for more information. Kathleenmay simply pay more attention to product information of a personal computer. She becomesmore attentive to computer ads, computers purchased by her friends, and peer conversationsabout computers. Or, she may more actively seek information by visiting stores, talking tofriends, or reading computer magazines, among others. Through gathering information, theconsumer learns more about some brands that compete in the market and their features andcharacteristics. Theoretically, there is a total set of brands available to Kathleen, but she willbecome aware of only a subset of the brands (awareness set) in the market. Some of thesebrands may satisfy her initial buying criteria, such as price and processing speed (considerationset). As Kathleen proceeds to more information search, only a few will remain as strongcandidates (choice set).Evaluation and Selection of AlternativesHow does the consumer process competitive brand information and evaluate the value of thebrands? Unfortunately there is no single, simple evaluation process applied by all consumers orby one consumer in all buying situations.Decision ImplementationTo actually implement the purchase decision, however, a consumer needs to select both specificitems (brands) and specific outlets (where to buy) to resolve the problems. There are, in fact,three ways these decisions can be made: 1) simultaneously; 2) item first, outlet second; or 3)outlet first, item second.ii In many situations, consumers engage in a simultaneous selectionprocess of storesiii and brands. For example, in our Kathleen’s personal computer case, she mayselect a set of brands based on both the product’s technical features (attributes) and availabilityof brands in the computer stores and mail-order catalogs she knows well. It is also possible, thatshe decides where to buy (e.g., CompUSA in her neighborhood) and then chooses one or twobrands the store carries. Once the brand and outlet have been decided, the consumer moves on tothe transaction (“buying”).Post-purchase EvaluationPost-purchase evaluation processes are directly influenced by the type of preceding decision-making process. Directly relevant here is the level of purchase involvement of the consumer.Purchase involvement is often referred to as “the level of concern for or interest in the purchase”iv situation, and it determines how extensively the consumer searches information in making apurchase decision.v Although purchase involvement is viewed as a continuum (from low tohigh), it is useful to consider two extreme cases here. Suppose one buys a certain brand ofproduct (e.g., Diet Pepsi) as a matter of habit (habitual purchase). For him/her, buying a coladrink is a very low purchase involvement situation, and he/she is not likely to search andevaluate product information extensively. In such a case, the consumer would simply purchase,consume and/or dispose of the product with very limited post-purchase evaluation, and generallymaintain a high level of repeat purchase motivation (Figure 3). Simple Repeat Purchase Purchase Product Use Disposition Evaluation MotivationLow Involvement Purchase
  • 7. However, if the purchase involvement is high and the consumer is involved in extensivepurchase decision making (e.g., personal computer), he/she is more likely to be involved in moreelaborate post-purchase evaluation – often by questioning the rightness of the decision: “Did Imake the right choice? Should I have gone with other brand?” This is a common reaction aftermaking a difficult, complex, relatively permanent decision. This type of doubt and anxiety isreferred to as post-purchase cognitive dissonance (Figure 4). Post-purchase Dissonance Dissatisfaction Elaborate Repeat Purchase Purchase Product Use Disposition Evaluation MotivationFigure 4 Elaborate Post-purchase Evaluation Source: Adopted from Hawkins, Best, and Coney (1983)According to the research, the likelihood of experiencing this kind of dissonance and themagnitude of it is a function of:vi The degree of commitment or irrevocability of the decision, The importance of the decision to the consumer, The difficulty of choosing among the alternatives, and The individual’s tendency to experience anxiety.Because dissonance is uncomfortable, the consumer may use one or more of the followingapproaches to reduce it:vii Increase the desirability of the brand purchased. Decrease the desirability of rejected alternatives. Decrease the importance of the purchase decision. Reject the negative data on the brand purchased.If the dissonance about the purchase is not reduced, the anxiety may transform into adissatisfaction (general or specific). Certainly, this negative experience leads to a new problemrecognition (Figure 1), and the consumer will engage in another problem solving process. Thedifference, however, is that in the next round of process, memory of the previous negativeexperience and dissatisfaction will be used as part of information. Therefore, the probability forthe unsatisfactory brand to be re-selected and repurchased will be significantly lower than before. The Hierarchy of EffectsAnother widely-used model in marketing that attempts to explain consumer decision makingprocess is called the hierarchy of effects model. Although different researchers developedslightly different models, the basic idea is the same: people experience a sequence ofpsychological stages before purchasing a product. Such a model is provided in Figure 5. viii
  • 8. Purchase Conviction Preference Liking Knowledge Awareness UnawarenessFigure 5 A General Model of the Hierarchy of EffectsOriginally conceived to explain how advertising affects consumer’s purchase decisions, thehierarchy of effects (HOE) model focuses on consumer learning that takes place as he/sheprocesses information from the external world. The HOE model begins with the state where aconsumer has no awareness about the brand (unaware) then develops awareness triggered byexternal stimuli, such as advertising message or “word of mouth.” As he/she obtains andprocesses more information, the consumer develops more specific knowledge about the brand.The knowledge, then, is used as basis to form a liking (or disliking), leading to a preference ofbrand(s) relative to the others. However, people need to be pushed beyond the preference stageto actually buy the brand of preference. The preference stage, after all, simply means that theconsumer has formed a preference psychologically. Now it takes conviction for him/her beforeactually buying the brand.The HOE model is quite similar to the consumer information processing model because it alsoassumes that people are cognitively driven, thinking information processors. Controversyexists,ix of course, as to whether that is necessarily true. Some may claim that they often formliking and preference (emotional response or feeling) toward brands before developing cognitivejudgment (knowledge or thinking) on them. Others argue that people form preference andknowledge simultaneously. Although each argument has its own support, the general model(cognition first, preference second) seems to be valid especially in relatively complex – or high-involvement – decision making situations (e.g., cars, computers), providing a conceptualframework for thinking about the sequence of events which begins from the initial awareness tothe final action (i.e., purchasing).Buyer behaviour - The decision-making process
  • 9. This model is important for anyone making marketing decisions. It forces the marketer to consider thewhole buying process rather than just the purchase decision (when it may be too late for a business toinfluence the choice!)The model implies that customers pass through all stages in every purchase. However, in more routinepurchases, customers often skip or reverse some of the stages.For example, a student buying a favourite hamburger would recognise the need (hunger) and go rightto the purchase decision, skipping information search and evaluation. However, the model is veryuseful when it comes to understanding any purchase that requires some thought and deliberation.The buying process starts with need recognition. At this stage, the buyer recognises a problem or need(e.g. I am hungry, we need a new sofa, I have a headache) or responds to a marketing stimulus (e.g.you pass Starbucks and are attracted by the aroma of coffee and chocolate muffins).An “aroused” customer then needs to decide how much information (if any) is required. If the need isstrong and there is a product or service that meets the need close to hand, then a purchase decision islikely to be made there and then. If not, then the process of information search begins.A customer can obtain information from several sources:• Personal sources: family, friends, neighbours etc• Commercial sources: advertising; salespeople; retailers; dealers; packaging; point-of-sale displays• Public sources: newspapers, radio, television, consumer organisations; specialist magazines• Experiential sources: handling, examining, using the product
  • 10. The usefulness and influence of these sources of information will vary by product and by customer.Research suggests that customers value and respect personal sources more than commercial sources(the influence of “word of mouth”). The challenge for the marketing team is to identify whichinformation sources are most influential in their target markets.In the evaluation stage, the customer must choose between the alternative brands, products andservices.How does the customer use the information obtained?An important determinant of the extent of evaluation is whether the customer feels “involved” in theproduct. By involvement, we mean the degree of perceived relevance and personal importance thataccompanies the choice.Where a purchase is “highly involving”, the customer is likely to carry out extensive evaluation.High-involvement purchases include those involving high expenditure or personal risk – for examplebuying a house, a car or making investments.Low involvement purchases (e.g. buying a soft drink, choosing some breakfast cereals in thesupermarket) have very simple evaluation processes.Why should a marketer need to understand the customer evaluation process?The answer lies in the kind of information that the marketing team needs to provide customers indifferent buying situations.In high-involvement decisions, the marketer needs to provide a good deal of information about thepositive consequences of buying. The sales force may need to stress the important attributes of theproduct, the advantages compared with the competition; and maybe even encourage “trial” or“sampling” of the product in the hope of securing the sale.Post-purchase evaluation - Cognitive DissonanceThe final stage is the post-purchase evaluation of the decision. It is common for customers toexperience concerns after making a purchase decision. This arises from a concept that is known as“cognitive dissonance”. The customer, having bought a product, may feel that an alternative wouldhave been preferable. In these circumstances that customer will not repurchase immediately, but islikely to switch brands next time.To manage the post-purchase stage, it is the job of the marketing team to persuade the potentialcustomer that the product will satisfy his or her needs. Then after having made a purchase, thecustomer should be encouraged that he or she has made the right decision.The main factors that influence buying behaviour are as follows1.Economic factors:Price
  • 11. IncomeDistribution of incomeCompetition with substitutesUtilityConsumer preferences2.Social factors:CultureAttitude of societySocial valuesLife stylePersonalitySize of familyEducationHealth standards3.PsychologyIt decides the personality, taste, attitudes of individuals or groups, lifestyle, preferences especially onoccasions like marriage. The demonstration influence is also dependent upon psychology of an individual.4.Anthropology and GeographyClimate, region, history all affect consumer behaviour. In hot countries like India, certain products, whichkeep us cool like squashes, sarbats, are demanded, but they certainly have no demand in cold regions. Thedress is also influenced by climate along with other factors. Culture is also influenced by climate.5.TechnologyIn case of equipments, whether for consumer use or industrial use, is affected by technologicalinnovations and features. But it is not confined to durable goods only.Even in case of perishable goods the shelf life etc are determined by technological developments.Innovations and introduction of new products also depend upon technological change.6.Situational influencesPurchase task - who are you buying for?
  • 12. Social surroundings - who are you shopping with?Physical surroundings - where are you shopping?Temporal factors - how much time do you have to shop?Antecedent states -What kind of mood are you in?Have you just been paid?Do you shop for status or self-gratification?7.OthersThis includes knowledge – technical or otherwise and information.Government decisions, laws, distribution policies have also big effect on consumer behaviour.All these factors are studied by consumer behaviour scientists and then they decide what production andmarketing strategy should be adopted to develop a particular product, change the existing product andwhat pricing and marketing mix should be used to attract more customers towards the product or serviceto optimize sales and profits.MNC’s and few big companies have ignored except the consumer behaviour study in India. It is becausetill recently say upto the beginning of 90’s there was sellers market and anything could be sold. Thereforehardly any attention was paid to the consumer.Major Types of Buying Situations1. New TaskA business buying situation in which the buyer purchases a product or service for the first time.2. Modified RebuyA business buying situation in which the buyer wants to modify product specifications, prices, terms, orsuppliers.3. Straight RebuyA business buying situation in which the buyer routinely reorders something without any modifications.